The Initial Loan Procurement is a new fundraising method that is similar to an Initial Coin Offering (ICO) but in the form of loans rather than coins. In this ILP scheme, borrowers and creditors enter loan agreements through legally binding smart contracts. Blockhive will be the first company that runs an ILP for the first time.
The Blockhive team believes that there is a need for an alternative to ICO due to the following shortcomings. In a blog post, they mention – The token economy is based on the demand, and sometimes selling tokens doesn’t make sense because the token has no real function for your business. Also, laws and regulation are an important consideration, because countries such as China have banned ICOs. Tax also play a major part. Some countries consider money raised through ICOs to be income rather than capital, and may tax it at rates as high as 40 percent.
Blockhive reports that they have partnered with smart-contract development firm Agrello to develop a way for businesses to raise funds using loans. Here are some unique points of ILP:
- The structure is as effective as ICO because it is open to individuals around the world.
- It is legally binding because agreements are digitally signed using blockchain technology which records information in a distributed database so they can’t be easily altered, adding a level of security for creditors.
- Because ILP is in the form of loans, it is considered to be debt, and not subject to tax.
- For businesses that don’t need tokens in the first place, ILP provides an alternative so more time and energy can be spent on business development, rather than creating tokens with no actual usage.
- The ILP is regulation-friendly. Blockhive conforms with regulatory frameworks designed to fight fraud and money laundering. Therefore, participants of ILP will be required to submit their identification and to go through the process of authentication.
The Blockhive team says, “for businesses that don’t need tokens in the first place, ILP provides an alternative so more time and energy can be spent on business development, rather than creating tokens with no actual usage. Last, but not least, because ILP is in the form of loans, it is considered to be debt, and not subject to tax.”
How does it work?
In Blockhive’s case,
- they first ask our creditors to register their identification, Ether address and other information.
- Then, they will digitally sign the loan agreement and send Ether to their account address from their pre-registered account.
- Once they received the Ether, the contract is made.
- That means Blockhive’s creditors can receive 20 percent of blockhive’s annual profit as interest payment.
- After the loan contract is made, Blockhive will issue Future Loan Access Tokens (FLAT). FLAT gives creditors the right to transfer loans to others, using EIP20.
The team further clarifies, “When individuals receive FLAT tokens, they become potential creditors and can use the tokens to sign loan agreements with the borrower, in this case Blockhive. Once they have signed the loan agreement with Blockhive, they are now the new creditors of the loan agreement and they will get the interest payments.”
After Blockhive’s initial ILP, Tokennote will serve as the platform that carry and issue future ILPs.
Take part in the Blockhive ILP
The ILP seems like a much more secure approach to fundraising while keeping the ease of raising funds like the ICO. Blockhive is a first test case of this new funding method. It is currently ongoing and you can register for it here – https://blockhive.ee/ilp